Low building inventory prompts look at undeveloped land

Industrial and commercial buildings are evaluated and subjectively classified based on a wide variety of factors, all of which are relative to their local markets. In addition to the factors listed below, consideration also is given to age, amenities, parking, construction materials and architecture.

Class A: Typically a building with a higher rent in relation to the marketplace, excellent location and mechanical systems to meet current and future needs.

Class B: Typically a building with average rent, an average to good location and adequate mechanicals to deliver services currently required.

Class C: Typically a building with rent near the bottom of the marketplace, a less desirable location and mechanicals that may not meet the needs of current tenants.

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JANESVILLE—Jeff Helgesen said supply and demand is driving his desire to build four industrial buildings on Janesville's south side and expand another on the east side.

There simply isn't an adequate supply of 100,000-square-foot-plus buildings in Rock County that prospective tenants are looking for, the Janesville developer said.

Beyond the low inventory of existing buildings, Helgesen believes there are few sites available that could be built on that don't include the potential for the costly excavation work he is facing on Janesville's south side.

James Otterstein, Rock County's economic development manager, agrees—to a point.

Otterstein believes sweeping statements should be balanced with the intricacies of local markets, both in terms of quantity and quality of existing buildings and existing land for development.

Existing buildings

Otterstein said Rock County's industrial real estate vacancy rate has dropped in recent years from about 12 percent to 6 percent.

When it comes to buildings of 100,000 square feet, Otterstein said, there's a limited supply of existing facilities that would be considered Class A, those preferred by tenants with national and international customer bases.

Helgesen said he's inventoried southern Wisconsin and found only three existing buildings of that size that tenants would seriously consider. All, he said, are in Dane County.

Otterstein said he would add three others, and they are all in Beloit. A couple of others—one in Janesville and one in Edgerton—would grade out at a lower classification.

Existing sites

While a specific grading system applies to existing buildings, a different system is used to qualify available land, Otterstein said.

Generally, he said, the terms include development site, existing site, certified- or shovel-ready site and pad-ready site.

-- A development site usually refers to acreage that could be pegged for development, but it lacks access to utilities or infrastructure.

Otterstein said these sites often are farm fields in crop production.

“The approval processes, not to mention the installation of the required infrastructure, involves rather significant amounts of planning and resources,” he said. “In some instances, these sites can represent a planned unit development that simply hasn't moved forward with formal development because of market conditions.

-- Existing sites are vacant parcels in an existing business or industrial park.

Examples in Janesville include the Kennedy Road Business Park and the East Side Park in the area of Capital Circle and Wuthering Hills Drive, Otterstein said.

“These properties have access to the utility and infrastructure network that feeds the park, and therefore are often characterized as ready-to-build,” he said.

-- The next classification involves taking the ready-to-build to a certification or designation level.

“In doing this, the property has successfully documented that any and all obstacles have been researched, removed and/or validated by an independent third party,” he said. “This is an exhaustive qualitative and quantitative process … to elevate properties to a higher, more marketable position.”

Rock County has four certified shovel-ready sites, including the 276-acre business park just across the Highway 11 bypass from Helgesen's proposed development.

-- The final classification is a pad-ready site.

“When a property reaches this stage, all of the necessary excavation—cuts and fills—and related land preparation activities have taken place,” Otterstein said.

The pad-ready model often is a standard offering for parks owned by publicly traded real estate investment trust companies that operate in the largest metropolitan areas, he said.

“Not only are these parks located in premiere geographic locations, they also tend to have direct access to top-notch transportation resources, such as deep water ports, Class I railroads and top-rated air cargo handling facilities,” he said.

Otterstein said that while brokers or building owners might squabble about real estate classifications, it's difficult to argue that demand isn't outstripping supply in Rock County.

“There will always be prospective users that have needs and wants that exceed what the local market can satisfy,” he said.

With a shrinking supply of Class A space, prospective tenants must decide whether existing Class B or Class C space can meet their needs. If they don't, then it's time for new real estate developments, he said.

“Without question, there's a healthy supply of shovel-ready property in our marketplace,” Otterstein said. “The same cannot be said for pad-ready sites, which are an entirely different pathway for the traditional municipal- or village-owned parks that allow developer-of-choice arrangements without imposing any extra financial hurdles.”